Securing key man insurance if you have a health problem can be challenging. However, there are several key tips that can help you get a positive result. Following is a real key man life insurance case that we worked at MEG Financial. The names have been changes to protect the identity of the individual and the company.
If the key person die, protecting your team with key employee insurance, disability coverage, and business life insurance is a sound investment. With guidance from a financial advisor or financial professional, companies, especially small businesses with sole financial responsibility, can evaluate how much coverage is needed to maintain stability during uncertain times. Consulting with a trusted financial institution and seeking proper tax advice can further ensure your financial interests, family members, and overall business operations are secured through the right life insurance products.
Key Takeaways of Getting Key Man Insurance If You Have a Health Problem
Businesses can still secure a key person insurance policy even when the insured has a serious preexisting health condition by using a strategic trial application process.
A key person life insurance policy can be critical for guaranteeing business loans and protecting against significant financial loss tied to a key individual’s death or disability.
Permanent life insurance and term life insurance both offer options for key person coverage, with permanent policies also offering cash value and long-term financial protection.
Key person insurance cost may be higher for individuals with health issues, but the financial protection provided offsets lost income, business expense, and ensures business continuity.
Consulting a financial advisor or insurance professional helps determine how much coverage is needed and whether premiums paid may be tax deductible depending on the structure.
You can likely find an affordable key man insurance policy even if you have a preexisting health condition. Scenario:
Gregory French, a business owner in Louisiana contacted us seeking $1,755,000 of key man life insurance to cover a loan his company was taking out as part of a business expansion and building acquisition. He had previously applied for key man insurance with his local agent that he had worked with for many years and was declined due to a prior heart condition. He subsequently searched the internet and quickly discovered that most agents didn’t have the expertise or willingness to do the work required to help him.
At that point, Mr. French found our company, MEG Financial, as we specialize in key man insurance but more importantly have extensive experience with all types of heart conditions, diabetes, prostate cancer and many other common medical conditions.
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After speaking with Mr. French, age 56, we discovered that he had a complex history of several heart problems and the case was gong to be very difficult due to the early onset of these conditions. In most cases like Mr. French’s, 99% of all agents would submit an application for insurance and hope for the best outcome. However, this approach offers extremely limited options and usually ends in negative results. Furthermore, if Mr. French is declined, it may create a bad impression with other insurance companies that he may apply with in the future.
Our approach to getting key man insurance if you have a health problem is simple and pain free. The first step was to explain to Mr. French up front that his case was going to be tough and if we were able to secure an offer for key man insurance that it would be expensive. Instead of submitting several applications for insurance with several different companies, we decided to take the more comprehensive (and labor intensive) approach of ordering Mr. French’s medical reports from his cardiologist and primary physician and shopping his options with many companies for potential offers.
This process, called a “Trial Application” guaranteed the best results for Mr. French as it allowed us to shop with over 80 companies the specifics of his medical records and gave each insurance company the opportunity to review the records and make formal offers based on their risk assessment. Essentially, we asked the insurance companies to make bids on the case. Mr. French liked the approach as he was tired of going through the key man application process and being turned down.
With Mr. French’s authorization, our office ordered his medical records from his physicians and a written summary of his health history and insurance needs was sent out to 80+ insurance companies for informal review. After 5-7 business days, our office began to receive responses from insurance companies that reviewed the case. Unfortunately, we got decline after decline on Mr. French’s trial application.
Finally, after 30+ declines, we were able to secure an offer for key man insurance for Mr. French with a highly respected insurance company. While the offer was expensive, it was an offer and Mr. French badly needed the coverage. We formally submitted an application for the key man policy and Mr. French was approved and accepted the policy for $1,755,000. Mr. French was ecstatic with outcome and appreciated our professional approach to helping him to secure his key man policy.
Getting key man insurance if you have a health problem doesn’t have to be nightmare. If you have a need for key man insurance or life insurance in general and you have a medical condition or have been turned down for life insurance, call us today at (877) 583-3955.
Key employee insurance
Key employee insurance (also known as key person insurance) is a type of business insurance designed to protect a company from financial losses resulting from the untimely death or disability of a key executive or top-performing employee.
A key person’s contribution to a business often extends beyond day-to-day operations. This individual may be responsible for generating revenue, managing major clients, or providing specialized knowledge. If that person were suddenly gone, the company could suffer lost sales, operational setbacks, and even face long-term instability.
The key person’s salary often reflects their impact on business success. If they were to die or become disabled, the company could experience major financial harm, especially if their expertise or relationships are not easily replaceable.
How Key Employee Insurance Works
When a company takes out a key employee insurance policy, it becomes the owner and beneficiary. In the event of the key person’s death, the company receives the policy’s death benefit, which can be used to:
Offset lost sales and profits
Cover recruitment and training costs for a replacement
Stabilize finances to reassure investors or lenders
Buy out partnership interests if needed
The insurance can be either term-based or permanent insurance, depending on how long the company wishes to maintain coverage and whether it wants to accumulate monetary value within the policy.
Disability and Tax Considerations
Many businesses also include disability insurance in their key employee protection strategy. This ensures that if the key person becomes unable to work, the company still receives financial support during the transition.
The death benefits from a key employee life insurance policy are typically income tax-free if the policy is structured correctly. However, there are exceptions, and companies should always consult a tax advisor to ensure compliance with IRS rules.
How It Differs from Personal Life Insurance
Unlike personal life insurance, which supports the individual’s family or estate, key employee insurance is owned by the business and serves the company’s financial interests. It is not intended to replace the personal coverage that a key executive might maintain for their dependents.
Frequently Asked Questions about Getting Key Man Insurance If You Have a Health Problem
What is the Meaning of Keyman Insurance?
Keyman insurance refers to a life insurance policy taken out by a business on the life of an essential employee, often a founder, executive, or top performer, whose absence could significantly affect the company’s operations or finances. The business owns the policy, pays the premiums, and is the beneficiary in case the critical employee dies.
Is There a Limitation on Key Person Insurance?
Yes, there are limitations, same as other life insurance policies. The amount of coverage typically depends on the key person’s role, contribution to the business, and the company’s financials. Insurers may also cap the policy amount based on the key employee’s salary or the business’s revenue. Additionally, the insured must consent to the coverage.
Is the Key Person Insurance Cost Worth It?
Key man insurance is often considered worth the investment for businesses that rely heavily on a specific individual. It provides financial stability during a leadership transition, covers potential revenue loss, and may reassure investors and creditors. For small or founder-led companies, it can be a critical safeguard in case their key employee’s death or disability.
In addition to replacing lost income and managing business expense, a well-structured key person insurance coverage plan can support banking facilities, and address business debt. It’s also a practical solution for offsetting lost income, managing business loans, or safeguarding against significant financial loss.
What is Key Man Insurance Coverage?
There are different types of insurance coverage, such as the term life policy, permanent life policy, and universal Key man insurance coverage provides a death benefit to the business if the insured key employee dies. Some policies also offer benefits in cases of critical illness or disability. The payout can be used to cover lost revenue, recruit a replacement, pay off debts, or maintain operations during the transition period.
Conclusion and Summary of Getting Key Man Insurance If You Have a Health Problem
In Gregory French’s case, securing a key person insurance policy despite a complex heart history highlighted the importance of working with an insurance professional who understands both medical nuances and financial strategy. The final key person life insurance offer, though costly, ensured the business could move forward with guaranteeing business loans and protecting its financial future. For businesses navigating similar risks, evaluating key man life insurance options is essential. A key person policy may carry a higher cost depending on the health of the insured person, but the long-term benefits far outweigh the initial premiums paid.
